Before law firms and corporations enlist the help of spend management consultants, they managed their indirect spend internally in several ways. Typically they:
- Gather recommendations from peers within their industry or markets.
- Send requests for proposals and bids that includes the peers’ vendors and other word-of-mouth recommendations.
- Set up meetings or phone calls with vendor representatives to discuss needs.
Once the request for proposals (RFPs) have been distributed, they’ll get most of their information directly from the contenders themselves, which is often limited to what those vendors control on their websites and social media.
Lack of transparency and other problems
While this typical approach to indirect spend may work in some cases, the process comes with limitations and obstacles, including:
- Reliance on word-of-mouth and limited recommendations when there may be more options and better solutions.
- Inherent bias of all vendors, who of course, are not neutral. Reputable vendors are honest and forthcoming yet, naturally, they tend to reveal data that best supports their needs to make a sale.
- Internal gaps and blind spots, from poor contract negotiation skills to lack of resources to barriers that arise due to internal cultures and politics.
If you’re dealing with any of the above, or other issues, it may be time to enlist objective, outside help from spend management experts like LAC Group.
Why clients choose external spend management support
In my experience, law firms and corporations decide to pursue outside help for spend management and cost reduction services for two reasons:
- For deep understanding and the most current information on vendors and pricing trends. They seek our “insider knowledge” to gain an edge in assessing vendors and managing contracts.
- For strategic advice on how to optimize their total spend with an objective, 360-degree view of operating expenses.
However, when we dig further, we often discover a number of other factors that indicate a need for spend management discipline and expertise. These are the common issues and concerns that we identify as pivot points, because they indicate situations in which the greatest benefits may be found.
Spend management pivot points
- Vendor contract renewal time: When it’s time to renew contracts, companies can benefit from an outside consultant’s expertise and current information for contract negotiation support.
- Financial performance concerns: A company’s lagging performance may lead to an internal objective to lower spend and move spend management to the forefront as a current, high-priority item.
- Economic downturn or anticipated downturn: Market conditions may lead firms and corporations to seek external advice. For example, the first quarter of 2019 was flat for many law firms, creating an urgency to lower expenses.
- Evolution of products and services: Vendors change and evolve in terms of the products and services they sell and how they sell them. This happens consistently and most. Keeping track of vendors is a core activity for us, not for our clients.
We specialize in vendor negotiations and contracts, whereas companies and even law firms can only negotiate based on limited knowledge and experience. Once the contract is signed, we monitor for compliance and ensure that renewals don’t come and go without revisiting terms and conditions.
Typical spend management concerns and objections
When speaking with potential clients, a handful of concerns and questions are raised regularly, so I will share them here, along with our standard response.
We can be of greatest help to businesses that do not have a dedicated or robust procurement function. This means that each department is making procurement decisions individually, with no inspection or coordination and with the loss of advantages that come with centralized efforts.
Indirect spend management can be one of the fastest ways to enhance free cash flow. It’s like picking low-hanging fruit, yet it’s often overlooked. I hope this article has helped you better understand the spend management process. If you believe it could be advantageous to your circumstances, I welcome your questions to help you find out.